Mohit Oberoi
Recession fears have increased as the Fed looks in no mood to pivot to rate cuts anytime soon. While Fed chair Jerome Powell is still hopeful of a soft landing for the US economy, an increasing number of economists now see a recession in 2023.
Greg Jensen who is the co–chief investment officer of Bridgewater Associates is among those who have joined the recession bandwagon. Notably, while some still believe that a recession, if at all it happens would be quite shallow, Jensen believes it would be the other way around.
He said, “We’d expect kind of double the normal length of a recession because the Fed’s not going to be at your back for a long time, and that’s a big deal.” He said that China’s reopening would fuel inflation in developed markets.
Notably, China’s lockdowns helped put a lid on commodity prices, especially oil. Of late we have seen some upwards price action in crude oil prices amid optimism over reopening in China. We have a guide on how to trade in oil.
Jensen meanwhile is circumspect about the outlook for stock markets. He said, “Overall it’s not great out there, and cash is not a terrible thing,” he said. “Assets don’t always go up even though we’ve had that feeling over the last decade.”
While recession impacts most sectors of the economy, some of the investments are largely recession-proof.
Economists see Recession, Powell is Still Hopeful of a Soft Landing
Meanwhile, even as many analysts are getting worried about an impending recession, Powell tried to downplay recession fears after the December FOMC meeting. As expected, the US central bank raised rates by 50 basis points at the meeting. It also called for another 100-basis point rate hike in 2023.
At his press conference following the December FOMC meeting, Powell said that a soft landing for the US economy was still possible if inflation comes down. He added, “I just don’t think anyone knows whether we’re going to have a recession or not. And if we do, whether it’s going to be a deep one or not … it’s not knowable.”
Treasury Secretary Janet Yellen also does not see a recession as imminent. In October, President Joe Biden even mocked economists who have been predicting recession every now and then.
Fed’s rate hikes, recession fears, and the fallout of FTX bankruptcy have also taken a toll on digital assets. We have a guide on whether crypto is recession-proof.
Elon Musk Warns Recession Would get Amplified with Fed’s Rate Hikes
Before the Fed’s December meeting, Elon Musk tweeted that recession would be “greatly amplified” if the Fed raises rates again. He has been warning of a recession for quite some time now and even laid off some Tesla employees amid the economic slowdown.
Tesla stock is trading near two-year lows amid Musk’s Twitter antics. Amid sagging Tesla stock price and his falling popularity, Musk held a Twitter poll on whether he should quit as Twitter’s head.
The poll results suggest that Musk should not lead Twitter. It however remains to be seen if Musk with his long history of U-turns follows the poll results.
He incidentally, did not accept dogecoin as payment for Tesla calls despite a Twitter poll where the majority voted in favor. Dogecoin has seen some upwards traction though since Musk acquired Twitter. You can also buy dogecoin with PayPal.
Chinese Economy is Sagging Too
Meanwhile, slowdown fears are not limited to the US only. While China has relaxed some of its stringent COVID-19 restrictions amid widespread protests, the Chinese economy continues to sag as is evident in most data points.
While China is still officially targeting a GDP growth of 5.5% for 2022, it looks unlikely to reach anywhere near that level considering the growth in the first nine months of 2022.
As for recession fears, Michael Burry, Jamie Dimon, Jeff Bezos, Paul Tudor Jones, David Rosenberg, and Leon Cooperman are among those who have warned of a recession. Several indicators including the yield curve inversion have been flashing red signals for a possible US recession next year.
This week we’ll get the earnings from Micron, Nike, and FedEx which would also shed light on the US economy. During their previous earnings release, FedEx warned of a global slowdown. The company’s earnings would among the key economic indicators to watch this week as US stocks try to shed pessimism and recover from their slump.
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This article was written for Business 2 Community by Mohit Oberoi.
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